October 27, 2023
While Bitcoin and Ether attract the most press, attention, and trading volume, savvy traders understand that altcoins can be an important component of a crypto trading portfolio. Altcoins (short for “alternative coins”) are all the crypto coins that aren’t $BTC or $ETH. There are thousands of altcoins, and they currently total roughly a third of all crypto market cap, or nearly $350 billion.
Needless to say, there are many opportunities for profit hidden in this sizable market. But, there are also risks. Many altcoins have tiny valuations, small daily volumes, and unclear use cases, which can make them very volatile, difficult to get in and out of, and highly susceptible to rumor and manipulation.
Given the opportunities and risks in altcoin trading, it’s essential that you have access to comprehensive, granular altcoin data—ideally through a crypto data API.
Types of Altcoin Trading Strategies
First, let’s make a distinction between types of altcoins. For ease, we'll divide them into two types: stablecoins and everything else. Stablecoins, as their name implies, are created to have a stable value. Most often, they're pegged to the value of a real-world currency (usually the U.S. dollar) and can either be backed by real-world assets (usually the U.S. dollar or U.S. cash equivalents, but sometimes other assets) or they have their value managed by algorithms that adjust their supply and demand.
Because of their very nature, you're unlikely to actively trade stablecoins to profit. If their U.S. dollar pegged, their price typically fluctuates between a fraction of a penny above or below $1.00. Given such little volatility, the only reason to trade them is if, for whatever reason, market conditions have caused a depeg, or if you believe their collateral is no longer sufficient to hold the peg.
Some traders (and their bots) arbitrage stablecoins between different exchanges. However, absent a depegging scenario, the spread, particularly for asset-backed stablecoins, is usually tiny, and you need to be extremely nimble to snatch a profit. Still, stablecoins have two significant roles in crypto investment strategy.
One role is yield farming, a major component of many portfolios, which is discussed below.
The other significant role stablecoins have in altcoin trading is simply as one side of many trading pairs. They often act as the side into or out of an altcoin trade, as well as a low-risk haven during times of uncertainty or pause.
Back to other altcoins, the “everything else” category refers, literally, to every other coin—those other altcoins, which under normal conditions, exhibit price volatility. Their volatility makes these coins much more suitable for profit-seeking activity. Here are some basic altcoin trading strategies.
Buy and Hold
A buy and hold altcoin trading strategy involves purchasing altcoins and holding (or “hodling”) them, in the hope that they’ll appreciate over time. Long-term investors who believe that the potential growth of a particular coin outweighs short-term price fluctuations take this approach.
Day Trading
Altcoin day trading is a short-term altcoin trading strategy where traders buy and sell the coins within the same day, taking advantage of small price movements. This approach requires constant monitoring of the market and quick decision-making, making it more suitable for experienced traders.
Swing Trading
Altcoin swing trading is a medium-term altcoin trading strategy where traders hold positions for several days or weeks, attempting to profit from larger price swings. This approach requires a thorough understanding of market trends and technical analysis to identify entry and exit points.
Yield Farming
While not technically “trading,” yield farming is a major component of many portfolios. Sophisticated and rookie investors alike stake their stablecoins to enable their yield-farming strategies. Several DEXs and DeFi lending protocols have stablecoin pools that are in the top five for total value locked and trading volume. Yield in some of these pools can be significantly higher than real-world interest rates.
Using Altcoin Data APIs in Trading Strategies
The data from crypto APIs enables sophisticated market analysis and risk assessment.
Market Analysis
Market analysis is crucial for developing a successful altcoin trading strategy. Fundamental analysis involves evaluating the underlying value of an altcoin based on factors such as project development, team, and market adoption. Technical analysis focuses on studying patterns and trends in historical crypto price data to predict future price movements.
Risk Assessment and Mitigation
Altcoin risk assessment and management are essential for protecting your investment and ensuring the sustainability of your trading strategy. Basic risk mitigation techniques include setting stop-loss orders, diversifying portfolios, and using proper position sizing to minimize potential losses.
Accessing Amberdata’s Altcoin Data
To execute key components of an altcoin trading strategy, you’ll need access to clean and accurate historical data, both from crypto exchanges and from the altcoin’s blockchain. For this, you’ll need a comprehensive digital asset data API —the easiest way to access historical and real-time altcoin market data for each exchange you use.
Amberdata provides altcoin market data from over 100 centralized and decentralized exchanges.
We provide robust live and historical data for altcoin derivatives via REST API and bulk historical data downloads (which include options, futures, order book snapshots, and trades) via AWS S3. You can access advanced derivatives analytics for options and futures by downloading CSVs—if you need to share data, you can do so with our Python plug-in and Jupyter notebooks.
Amberdata Can Help You Analyze Altcoins
Amberdata can help you add altcoins to your trading strategy. We can also help you model and manage your altcoin exposure and risk.
We provide access to over 5,500 assets and 8,500 trading pairs.. Our extensive historical data, including trade, price, and order book data dating back to 2017 is unmatched, enabling robust backtesting and accurate slippage calculations.
Amberdata was built to serve financial institutions participating in crypto assets. Our unified API and comprehensive data infrastructure provide a single integration point for obtaining a complete view of the crypto economy.
To learn more about Amberdata, please contact us to book a demo.
